March 17, 2010

Food prices are on a rollIn another wave of inflation, chicken and pork to cost more

ELLEN SIMON

— By

Costco
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Costco

AP

Costco
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Costco

AP

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The Associated Press

Americans may be getting another helping of food inflation, thanks to higher prices for chicken and pork.

Overall food inflation could double this year, lifted by the rising costs of fuel, corn and soybeans, some analysts predict.

Food inflation hit 4 percent last year, up from 2.4 percent in 2006. While beef prices were already high, chicken and pork prices didn't reflect record costs for feed and fuel. That's due to change in the long run as chicken and pig producers, who have been losing money, slaughter more animals to decrease the supply and raise the prices they can charge.

Higher food inflation would further challenge shoppers who are already limiting themselves to sale items and store brands as they contend with the worst food inflation since 1990.

Jessica Creamer, 22, of Portland said she started buying a cheaper brand of milk and cut back on the number of trips she makes to the grocery store to save money.

Betsy Greenlaw, also of Portland, switched from a large supermarket chain to discounter Save-a-Lot to trim her grocery bill.

Greenlaw, the single mother of an 11-year-old boy, said she also has cut back on snack food and restaurant trips.

She said she wouldn't normally call herself a penny-pincher, but the jump in food prices coupled with the record-high cost of heating oil and gasoline has forced changes.

''The real thrifty people must be having coronaries right now,'' Greenlaw said.

U.S. shoppers spent 5.8 percent of their income on food in 2006, according to the U.S. Department of Agriculture, a lower proportion than any other nation.

In the United Kingdom, consumers spent 8.7 percent of their income on food, and in most of the world it's at least 10 percent.

But the U.S. portion seems certain to rise, as chicken and pig producers say prices have to go up as feed costs increase.

''American consumers are only just beginning to feel the impact of sharply higher food prices,'' said Pilgrim's Pride Corp. Chief Executive Clint Rivers.

The nation's largest chicken producer posted a wider quarterly loss Monday as it paid more for feed and took a restructuring charge.

Tyson Foods Inc., the world's biggest meat producer, forecasts that its expenses will rise $1 billion this year, including $600 million for corn and soybean meal and $100 million for grain.

The balance will come from higher prices for cooking oil, breading and fuel costs, the company said. Last week, Tyson reported a $5 million second-quarter loss and withdrew its earnings outlook, saying feed prices were too volatile.

''I think food inflation has got to go up,'' C. Larry Pope, president and chief executive of Smithfield Foods Inc., the world's largest pork producer, said in a recent speech. ''Everything that uses wheat, everything that uses corn, everything that uses corn syrup has got to go up.''

The exception may be beef, as already high beef prices may not see the increases that chicken and pork could, said Jim Hilker, an agricultural economist at Michigan State University. ''I'm not sure beef prices will go up a lot, but they won't come back down,'' he said.

Pork farm losses, though, may total $3.8 billion for 2008, one-quarter of total production, said Chris Hurt, an agricultural economist at Purdue University. He calls the industry ''a financial disaster in progress.''

It will be easier for publicly traded meat producers to weather a money-losing quarter than for farmer Bill Tentinger in LeMars, Iowa.

Tentinger said he expects to spend $85 per hundredweight feeding his hogs this year; at current levels, they will fetch prices in the mid $40s per hundredweight.

''Take that figure, times 10,000 hogs, and see if you can eat breakfast decent in the morning,'' said Tentinger, 59.

The biggest driver to prices is grain costs, which have been affected by the rise in ethanol production and strong export demand because of the weak dollar.

Corn costs have more than doubled in the past two years from $2.50 a bushel to $6. That has added $6 billion to chicken farmers' annual feed bills, according to the National Chicken Council, a trade group.

As a result, companies are slaughtering animals to tighten supply.

The move will temporarily increase supply, lowering prices, but as farm herds and flocks get smaller, prices will rise.

Fieldale Farms Corp., a privately held chicken producer, is cutting its production by 5 percent starting in the middle of the month.

Tom Hinsley, senior vice president, said he expects higher chicken prices by midsummer.

''They will have to rise, big-time. Otherwise, there will be no chicken,'' Hinsley said.

Pilgrim's Pride said it plans to reduce weekly chicken processing by 5 percent in the second half of the year, and keep production down until margins improve.

Smithfield said in February that it would slaughter 4 percent to 5 percent of its breeding sows.

A smaller breeding population and a wave of expected hog farm failures will boost pork prices by 2009, predicted Hurt, the Purdue economist. He estimates that 6 percent to 8 percent of breeding sows will need to be slaughtered to support prices.

The government is giving pork producers a hand by taking some pork off the market.

Agriculture Secretary Ed Schafer last week announced a government plan to buy up to $50 million worth of pork for child nutrition and domestic food assistance programs -- at the urging of the National Pork Producers Council.

Staff Writer Elbert Aull contributed to this report.

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Additional Photos

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Betsy Greenlaw of Portland unloads groceries at Save-a-Lot on St. John Street in Portland Monday. Greenlaw says she used to shop at large supermarket chain but switched to the discount store to save money.

John Ewing/Staff Photographer

click image to enlarge

Photo by John Ewing/Staff Photographer... Monday, May 5, 2008...Economic issues causing rising costs in food products, forcing shoppers to seek price bargins where they find them. Jessica Creamer and her friend, Francisco Goscon saved some money by buying at a discount grocery store and then saved on gas costs by walking back to their Portland home.

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Jerry Velasco places prices on seafood at Save More Meats in Pacifica, Calif., Monday, May 5, 2008. Higher food inflation would further challenge shoppers who are already limiting themselves to sale items and store brands as they contend with the worst food inflation since 1990. (AP Photo/Marcio Jose Sanchez)

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